The requirement of good faith for becoming a holder in due course Research Paper

The requirement of good faith for becoming a holder in due course - Research Paper Example Problems could arise in a situation whereby the holder seeking payment out of a negotiable instrument comes to learn that a certain defense to the payment exists. The same could happen when the holder learns that another party has a previous claim to the same instrument (PSTCC.edu). In this regard, the person seeking the payment is required to have legal rights of being a holder in due course. A holder in due course takes negotiable instruments free of any prevailing claims as well as most of other parties’ defenses. Usually, real defenses defeat payments to all holders with holders in due course inclusive. Besides, personal defenses have the capability of asserting against ordinary holders very successfully (PSTCC.edu). The HDC doctrine was implemented by the Article of the Uniform Commercial Code (Maggs 1). The Article also governs some negotiable instruments like promissory notes and checks. The doctrine asserts that, â€Å"a party who acquires a negotiable instrument in good faith, for value, and without notice of certain facts, and who also meets some additional requirements, takes the instrument free of competing claims of ownership and most defenses to payment† (Maggs 1). In this regard, the HDC doctrine may therefore relieve a party that is acquiring a note or check from such worries that someone else could own the instrument or the instrument maker would have certain legal grounds that could be used for the refusal to pay it. The doctrine of good faith is one of the various requirements for one to become a holder in good faith. In this regard, the holder is required to take the instrument, in question, â€Å"in good faith.† Good faith here is used to imply to â€Å"honesty in fact and the observance of reasonable commercial standards of fair dealing† (Maggs). An holder taking part in fraudulent schemes can be considered to be lacking good faith under such